Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, February 16, 2023

AI Summary. The Congressional Budget Office projects the federal deficit rising to 6.9% of GDP in 2033, well above the 3.6% average of the past 50 years, with net interest costs a major contributor. Federal debt held by the public is projected to climb from 98% of GDP to 118% by 2033 and 195% by 2053.

CBO Staff Congressional Budget Office
Date Posted:
Is Database:
Database

The @USCBO now projects the 2023 deficit to be $1.4T (vs $1T in the 2022 forecast) and revises the ten-year deficit projection (2023-2032) to $18.8T, $3.1T higher than was projected in 2022.

How high are federal deficits and debt projected to rise?

Core argument: CBO projects the federal deficit at 5.3% of GDP in 2023 and 6.9% in 2033, significantly larger than the 3.6% of GDP that deficits have averaged over the past 50 years.

In CBO’s projections, the deficit amounts to 5.3% of gross domestic product (GDP) in 2023.  Deficits fluctuate over the next four years, averaging 5.8% of GDP. Starting in 2028, they grow steadily; the projected shortfall in 2033 is 6.9% of GDP—significantly larger than the 3.6% of GDP that deficits have averaged over the past 50 years. In CBO’s projections, net interest outlays increase by 1.2% of GDP from 2023 to 2033 and are a major contributor to the growth of total deficits. Primary deficits (that is, revenues minus noninterest outlays) increase by 0.4% of GDP over that period. Federal debt held by the public is projected to rise from 98% of GDP in 2023 to 118% in 2033.  Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt. Those factors persist beyond 2033, pushing federal debt higher still, to 195% of GDP in 2053.

Takeaways by Macro Roundup® AI

  1. CBO projects the federal deficit at 5.3% of GDP in 2023 and 6.9% in 2033, significantly larger than the 3.6% of GDP that deficits have averaged over the past 50 years.
  2. Net interest outlays increase by 1.2% of GDP from 2023 to 2033 in CBO's projections, a major contributor to deficit growth, while primary deficits rise by 0.4% of GDP.
  3. CBO projects federal debt held by the public will climb from 98% of GDP in 2023 to 118% in 2033 and 195% in 2053, as growth in interest costs and mandatory spending outpaces revenues and the economy.

AI Summary. Rising US income inequality is argued to be a main driver of the surge in US debt, because the rich save a larger share of their income, pushing up savings without a matching rise in investment. Unless offset by higher investment or smaller trade deficits, these savings must be balanced by household borrowing or larger fiscal deficits.

Michael Pettis @michaelxpettis
Date Posted:

.@michaelxpettis argues that “rising income inequality pushes up the savings of the rich, and if this cannot be matched with higher investment or a lower trade deficit, it must be matched with either higher unemployment or higher debt.”

.@michaelxpettis argues that “rising income inequality pushes up the savings of the rich, and if this cannot be matched with...

Does rising income inequality drive the surge in US debt?

Core argument: Pettis argues that one of the main drivers of the surge in US debt over the past four decades is the economic impact of rising US income inequality, which made rising debt a nearly automatic consequence.

While there are many reasons for the surge in US debt over the past four decades, one of the main reasons has to do with the economic impact of the rise in US income inequality during this period. Rising debt was the nearly automatic consequence of rising income inequality. Because the rich save a larger share of their income, rising income inequality tends to force up ex-ante savings. But this increase in the savings of the rich must be balanced. Today what mainly drives investment are increases in expected demand, and rising income inequality normally reduces expected demand by reducing the share of income that goes to consumption (all income is either consumed or saved). If the higher savings of the rich cannot be balanced by higher investment or lower trade deficits, they must be balanced by lower savings elsewhere in the economy. Policymakers don't want to see higher unemployment, so either the Fed will respond by encouraging a surge in household borrowing, or Washington will respond by increasing the fiscal deficit.

Takeaways by Macro Roundup® AI

  1. Pettis argues that one of the main drivers of the surge in US debt over the past four decades is the economic impact of rising US income inequality, which made rising debt a nearly automatic consequence.
  2. Because the rich save a larger share of their income, Pettis argues rising income inequality forces up ex-ante savings while reducing the expected demand that mainly drives investment, by shrinking the share of income going to consumption.
  3. Pettis argues that if higher savings of the rich are not balanced by higher investment or lower trade deficits, savings must fall elsewhere, with the Fed encouraging household borrowing or Washington increasing the fiscal deficit to avoid higher unemployment.

AI Summary. Bank reserves held at the Federal Reserve are about $1.2tn (30%) below their pandemic-era peak of roughly $4.3tn, which the author attributes to U.S. banks declining to raise deposit rates. As savers shift cash to higher-yielding money funds, banks have lost almost $400bn in deposits and replaced them with about $400bn of borrowings.

Matt Klein The Overshoot
Date Posted:

The quantity of reserves held by banks on deposit at the Fed is 30% lower than the pandemic era peak of ~$4.3T as savers move money out of banks in favor of higher yielding assets. @M_C_Klein

Are bank reserves shrinking because banks refuse to raise deposit rates?

Core argument: Bank reserves held on deposit at the Fed have fallen about $1.2 trillion, or 30%, from their pandemic-era peak of roughly $4.3 trillion reached at the end of 2021.

The end of 2021 was also when the quantity of reserves held by banks on deposit at the Fed began to shrink from the pandemic-era peak of ~$4.3 trillion. As of this writing, reserves are about $1.2 trillion (30%) lower now than then.  The underlying explanation for all this seems to be that U.S.-based banks are refusing to raise the rates they offer on deposits. As savers move cash from zero-yielding deposits to higher-yielding money funds, banks have to sell assets (mainly reserves, apparently) and/or find alternative sources of financing to replace the lost deposits. Since the start of 2022, U.S. commercial banks have lost almost $400 billion in deposits and replaced them with about $400 billion of “borrowings”.

Takeaways by Macro Roundup® AI

  1. Bank reserves held on deposit at the Fed have fallen about $1.2 trillion, or 30%, from their pandemic-era peak of roughly $4.3 trillion reached at the end of 2021.
  2. U.S. commercial banks have lost almost $400 billion in deposits since the start of 2022 and replaced them with about $400 billion of borrowings.
  3. The apparent explanation is that U.S.-based banks are refusing to raise deposit rates, prompting savers to move cash from zero-yielding deposits into higher-yielding money funds and leaving banks to sell assets, mainly reserves, or find alternative financing.

AI Summary. Household debt balances rose $394bn in a quarter, the largest nominal quarterly increase in 20 years, and 18.3m borrowers were behind on a credit card, up from 15.8m in 2019. With unemployment near a 50-year low, the evidence suggests higher prices and interest rates are driving delinquencies.

Andrew Haughwout, Donghoon Lee, et al Federal Reserve Bank of New York
Date Posted:

Researchers at @NewYorkFed report that delinquencies rates for credit card borrowers under age 50 are now above the pre-pandemic level, and they suggest that this may be driven by higher prices and higher interest rates.

Are higher prices and interest rates, not unemployment, driving rising delinquencies?

Core argument: Total debt balances rose $394 billion in the fourth quarter of 2022, the largest nominal quarterly increase in twenty years, with borrower-level delinquency rates approaching or surpassing pre-COVID norms.

Total debt balances grew by $394 billion in the fourth quarter of 2022, the largest nominal quarterly increase in twenty years. As borrower-level delinquency rates approach or surpass pre-COVID norms, many look to the historical culprit: the labor market. However, employment and income gaps are not likely triggers for this recent trend. The Bureau of Labor Statistics reported that there were just under 6 million unemployed in the fourth quarter of 2022, roughly unchanged from the previous quarter and near a fifty-year low (even as the population and labor force have grown). Meanwhile, there were 18.3 million borrowers behind on a credit card at the end of 2022 compared to 15.8 million at the end of 2019. Instead, the evidence suggests that higher prices and higher interest rates are the more likely culprits driving delinquencies. While person-level delinquencies are high, we do not anticipate widespread stress for lender portfolios as balance weighted delinquencies remain at or below pre-pandemic levels. But, on a person-level, this financial distress is real, and the delinquent marks will impact their access to credit for years to come.

Takeaways by Macro Roundup® AI

  1. Total debt balances rose $394 billion in the fourth quarter of 2022, the largest nominal quarterly increase in twenty years, with borrower-level delinquency rates approaching or surpassing pre-COVID norms.
  2. Some 18.3 million borrowers were behind on a credit card at the end of 2022, up from 15.8 million at the end of 2019, while the Bureau of Labor Statistics counted just under 6 million unemployed in the fourth quarter, near a fifty-year low.
  3. The evidence suggests higher prices and higher interest rates, rather than employment or income gaps, are driving delinquencies, and widespread stress for lender portfolios is not anticipated because balance-weighted delinquencies remain at or below pre-pandemic levels.

AI Summary. U.S. crude oil exports reached a record 5.1m barrels a day, roughly 10x the level before legislation opened the door to such shipments. Industry figures describe West Texas Intermediate crude as the most important marginal pricing barrel globally, turning a domestically focused market into an international one.

David Uberti Wall Street Journal
Date Posted:

As American crude exports hit new records West Texas Intermediate “has become the most important marginal pricing barrel on the globe,” said Peter Keavey, CME Group’s global head of energy. @WSJecon

Are record U.S. crude exports making American oil the global price setter?

Core argument: U.S. crude exports hit a record 5.1 million barrels a day in the week ended Oct. 21, according to the Energy Information Administration, roughly a 10-fold increase since President Barack Obama signed a bill opening the door to such shipments.

Crude exports hit a record of 5.1 million barrels a day the week that ended Oct. 21, according to the U.S. Energy Information Administration, a roughly 10-fold increase since President Barack Obama signed a bill opening the door to such shipments. West Texas Intermediate crude, or WTI, “has become the most important marginal pricing barrel on the globe,” said Peter Keavey, CME Group’s global head of energy and environmental products. “We have gone from a very domestically focused market into an international powerhouse,” he added.

Takeaways by Macro Roundup® AI

  1. U.S. crude exports hit a record 5.1 million barrels a day in the week ended Oct. 21, according to the Energy Information Administration, roughly a 10-fold increase since President Barack Obama signed a bill opening the door to such shipments.
  2. West Texas Intermediate crude "has become the most important marginal pricing barrel on the globe," said Peter Keavey, CME Group's global head of energy and environmental products.
  3. Peter Keavey said the U.S. oil market has gone from a very domestically focused market into an international powerhouse.

AI Summary. Saudi Aramco generated $181bn in operating cash flow over 12 months, exceeding the combined total of Exxon Mobil, Shell and Chevron in the same period. Despite publicly forecasting strong oil demand, Aramco's investment restraint suggests caution, since aggressive spending risks flooding a market gradually shifting away from petroleum and depressing prices.

David Fickling Bloomberg
Date Posted:

.@davidfickling notes that Saudi Aramco drilling activity is 30% below pre-Covid levels and argues that the company’s reduced capex spend is consistent with an internal forecast of declining global oil consumption by 2030. @bloomberg

Does the world's largest oil producer's spending contradict its demand forecasts?

Core argument: Saudi Aramco generated $181 billion of operating cashflow in the 12 months through September, exceeding the combined total posted by Exxon Mobil, Shell and Chevron over the same period.

Saudi Aramco's operating cashflows in the 12 months through September came to $181 billion — more than was posted in the same period by Exxon Mobil, Shell and Chevron put together. Saudi Aramco could never do anything but paint a bright future for oil consumption — but its revealed preference is more cautious. If it invests too aggressively now, it risks flooding a market that is gradually turning its back on petroleum, driving down prices and the kingdom’s own oil revenues. Its warning that oil supply will fall to about 80 million daily barrels in 2030 without more capex is pretty much in line with the levels of demand that BP expects at that point, in a world which manages to keep global warming well below 2 degrees Celsius.

Takeaways by Macro Roundup® AI

  1. Saudi Aramco generated $181 billion of operating cashflow in the 12 months through September, exceeding the combined total posted by Exxon Mobil, Shell and Chevron over the same period.
  2. Aramco's warning that oil supply will fall to about 80 million barrels a day in 2030 without more capex is roughly in line with the demand BP expects then in a world holding global warming well below 2 degrees Celsius.
  3. Investing too aggressively risks flooding a market gradually turning away from petroleum, driving down prices and Saudi Arabia's oil revenues, and Aramco's revealed preference is more cautious than its public rhetoric.

AI Summary. The Pentagon is reviewing its weapons stockpiles and may need to raise military spending after the high consumption rates of conventional munitions seen in the war in Ukraine. The return of large-scale conventional ground warfare in Europe is prompting US planners to reconsider assumptions that shifted capabilities toward counter-terrorism and irregular combat.

Felicia Schwartz Financial Times
Date Posted:

In an interview with the @ft, General Mark Milley noted one lesson from the Russo-Ukranian War is a “very high consumption rates of conventional munitions,” which may require increased spending to augment munitions stocks.

In an interview with the @ft, General Mark Milley noted one lesson from the Russo-Ukranian War is a “very high consumption...

Is large-scale ground warfare forcing the US to rebuild munitions stockpiles?

Core argument: The Pentagon is reviewing its weapons stockpiles and may need to raise military spending after the high consumption rates of conventional munitions seen in the war in Ukraine, according to General Mark Milley.

The Pentagon is reviewing its weapons stockpiles and may need to boost military spending after seeing how quickly ammunition has been used during the war in Ukraine. General Mark Milley said the return of 20th-century ground warfare tactics in Europe was forcing US planners to reconsider assumptions made in recent decades that had led military strategists to retool capabilities for counter-terrorism and irregular combat. “One of the lessons of this war is the very high consumption rates of conventional munitions, and we are re-examining our own stockages and our own plans to make sure that we got it right. We’re trying to do the analysis so that we can then estimate what we think the true requirement would be. And then we have to put that in the budget. Ammunition is very expensive.”

Takeaways by Macro Roundup® AI

  1. The Pentagon is reviewing its weapons stockpiles and may need to raise military spending after the high consumption rates of conventional munitions seen in the war in Ukraine, according to General Mark Milley.
  2. General Mark Milley said the return of 20th-century ground warfare tactics in Europe is forcing US planners to reconsider assumptions that led strategists to retool capabilities for counter-terrorism and irregular combat.
  3. General Mark Milley said the Pentagon is analyzing what the true munitions requirement would be so it can be put in the budget, noting that ammunition is very expensive.

AI Summary. Large language models are useful research tools for ideation, writing, background research, data analysis, coding, and mathematical derivations, and the author argues they will make economic researchers significantly more productive while risking leaving behind those who do not adopt them. The author expects human researchers to shift toward posing questions, choosing directions, selecting useful output, editing, and giving feedback.

Anton Korinek National Bureau of Economic Research
Date Posted:

.@akorinek reports on how large language models (LLMs) such as ChatGPT could increase productivity in economics research by focusing human effort on posing questions and providing feedback and editing of drafts from LLMs.

.@akorinek reports on how large language models (LLMs) such as ChatGPT could increase productivity in economics research by...

Will language models make economic researchers significantly more productive?

Core argument: Cognitive automation via large language models will make economic researchers significantly more productive in the short term, across tasks from ideation, writing and background research to data analysis, coding, and mathematical derivations.

LLMs have become useful research tools for tasks ranging from ideation, writing and background research to data analysis, coding, and mathematical derivations. In the short term, cognitive automation via LLMs will allow researchers to become significantly more productive. I expect that a growing number of researchers will incorporate LLMs into their workflow. This could help to increase the overall speed of progress in economics, although it risks leaving behind those who do not take advantage of LLMs. In the medium term, I anticipate that LLM-based assistants and tutors will become increasingly useful for generating the content that makes up research papers. Human researchers will focus on their comparative advantage by posing the questions, suggesting directions for obtaining answers, discriminating which parts of the produced content are useful, editing, and providing feedback, akin to an advisor.

Takeaways by Macro Roundup® AI

  1. Cognitive automation via large language models will make economic researchers significantly more productive in the short term, across tasks from ideation, writing and background research to data analysis, coding, and mathematical derivations.
  2. Growing adoption of large language models in research workflows could increase the overall speed of progress in economics, while risking leaving behind researchers who do not take advantage of them.
  3. In the medium term, LLM-based assistants and tutors will generate much of the content making up research papers, while human researchers pose the questions, suggest directions, judge which output is useful, edit, and give feedback.

Friday, February 17, 2023

AI Summary. Pandemic-era government relief payments helped Americans, particularly lower-income Americans, strengthen their finances, and the rebounding job market let lower-paid workers command higher pay. Wages for many white-collar professionals have not outpaced inflation, while wages and wealth for lower-paid workers have risen more.

Justin Lahart, Spencer Jakab, et al Wall Street Journal
Date Posted:

Households earning under $50,000 a year expect to increase their spending by 8% next year, while households earning $100,000 a year are expecting their spending to increase by only 5%. @wsj

Are lower-paid workers gaining income and wealth faster than white-collar professionals?

Core argument: Wages for Americans in lower-paying work have outstripped inflation while many white-collar professionals' wages have not, and the lower-paid group's wealth has risen more as well.

Early in the pandemic, several rounds of government relief allowed Americans in general, and lower-income Americans in particular, to build up their finances. Then the job market came roaring back and poorer workers found they could get paid a lot more than they did before. Many white-collar professionals haven’t seen their wages outstrip inflation, but people doing lower-paying work have, and the latter group’s wealth has risen more, too.

Takeaways by Macro Roundup® AI

  1. Wages for Americans in lower-paying work have outstripped inflation while many white-collar professionals' wages have not, and the lower-paid group's wealth has risen more as well.
  2. Several rounds of pandemic-era government relief allowed Americans, and lower-income Americans in particular, to build up their finances before the job market rebounded strongly.
  3. Poorer workers found, after the job market came roaring back, that they could get paid a lot more than before, a pattern characterized as a richcession rather than a recession.

AI Summary. The median return on capital is 7.44% for US firms and 5.19% globally, with about 10% of all firms earning above 50% and 10% below -50%. Rising risk-free rates and higher equity risk premiums and default spreads raised the US cost of capital from 5.60% to 9.63%, leaving the median US firm below its cost of capital.

Aswath Damodaran Musings on Markets
Date Posted:
Is Database:
Database

The median return on capital for an American firm in January 2023 is 7.4%, which is above the 5.6% cost of capital at the start of 2022, but below the 9.6% cost of capital at the start of 2023. @AswathDamodaran

Do most firms earn returns above their cost of capital?

Core argument: The median after-tax return on capital was 7.44% for US firms and 5.19% for global firms, with about 10% of all firms exceeding 50% returns and 10% delivering returns worse than -50%.

The after-tax returns on capital, at least in the aggregate, are unimpressive, with the median return on capital of a US (global) firm being 7.44% (5.19%). There are a significant number of outliers in both directions, with about 10% of all firms having returns on capital that exceed 50% and 10% of all firms delivering returns that are worse than -50%. A combination of rising risk-free rates and surging risk premiums (equity risk premiums and default spreads) has conspired to push the cost of capital of both US and global companies more than any year in my recorded history (which goes back to 1960). A company generating a 7.44% return on capital (the median value at the start of 2023) in the US, would have comfortably cleared the 5.60% cost of capital that prevailed at the start of 2022, but not the 9.63% cost of capital at the start of 2023.

Takeaways by Macro Roundup® AI

  1. The median after-tax return on capital was 7.44% for US firms and 5.19% for global firms, with about 10% of all firms exceeding 50% returns and 10% delivering returns worse than -50%.
  2. The US cost of capital rose from 5.60% at the start of 2022 to 9.63% at the start of 2023, so a firm earning the 7.44% median return cleared its cost of capital in 2022 but not in 2023.
  3. Rising risk-free rates combined with surging equity risk premiums and default spreads pushed the cost of capital for US and global companies up more than in any year on record going back to 1960.

AI Summary. The author estimates China's population is now below 1.28bn, versus the United Nations' figure of 1.43bn, and projects it will fall to 1.08bn by 2050 and 440m by 2100 even if fertility rises to 1.1 births per woman. The share aged 65 and older is projected to rise from 14% to 35% by 2050, leaving 1.6 workers per senior.

Yi Fuxian Project Syndicate
Date Posted:
Is Database:
Database

.@fuxianyi estimates that the Chinese population is currently 1.28 billion (vs 1.43 billion estimated by World Population Prospects).

Is China's population already far smaller than official estimates?

Core argument: The author estimates China's population is now below 1.28 billion, against the 1.43 billion given in the United Nations' 2022 World Population Prospects.

While the United Nations’ 2022 World Population Prospects puts the Chinese population at 1.43 billion people, I estimate that it is now smaller than 1.28 billion. Even if China succeeds in increasing its fertility rate to 1.1 and prevents it from declining, its population will likely fall to 1.08 billion by 2050 and 440 million by 2100. The country’s share of the world’s population, which declined from 37% in 1820 to 22% in 1950-80, will fall to 11% in 2050 and 4% by 2100. The share of Chinese people aged 65 and older will rise from 14% in 2020 to 35% in 2050. Whereas five workers aged 20-64 supported every senior citizen aged 65 and older in 2020, the ratio will continue to decline to 2.4 workers in 2035 and 1.6 in 2050.

Takeaways by Macro Roundup® AI

  1. The author estimates China's population is now below 1.28 billion, against the 1.43 billion given in the United Nations' 2022 World Population Prospects.
  2. Even if China raises fertility to 1.1 and holds it there, the author projects its population falling to 1.08 billion by 2050 and 440 million by 2100, with its share of world population dropping from 22% in 1950-80 to 11% in 2050 and 4% by 2100.
  3. The share of Chinese people aged 65 and older is projected to rise from 14% in 2020 to 35% in 2050, while workers aged 20-64 per senior citizen fall from five in 2020 to 2.4 in 2035 and 1.6 in 2050.

AI Summary. The US Inflation Reduction Act provides $369bn in tax credits, grants, loans, and subsidies for clean technology, many guaranteed past 2030, and allows credits to be sold to investors with tax liability to channel capital to developers faster. Credit Suisse estimates the public spending could reach $800bn, or $1.7tn including induced private spending.

Derek Brower and Amanda Chu Financial Times
Date Posted:

Credit Suisse forecasts that the Inflation Reduction Act could generate investments of $800B in public spending and another $900B of private spending generated by loans and grants by 2031. @FinancialTimes

How much spending will clean technology subsidies ultimately generate?

Core argument: The Inflation Reduction Act offers $369bn in tax credits, grants, loans, and subsidies for cleantech, many guaranteed past 2030, designed to spur private-sector investment and accelerate US decarbonization.

Last year’s colossal Inflation Reduction Act [IRA] and its hundreds of billions of dollars in cleantech subsidies are designed to spur private-sector investment and accelerate the country’s decarbonization effort.  All told, the IRA offers $369bn of tax credits, grants, loans, and subsidies, many of them guaranteed past 2030. The credits can be sold, too, allowing deep-pocketed investors with enough tax liability to buy the credit — a way to get more capital to developers, quickly. Credit Suisse thinks the public spending enabled by the IRA could eventually reach $800bn, and $1.7tn once the private spending generated by the loans and grants is included.

Takeaways by Macro Roundup® AI

  1. The Inflation Reduction Act offers $369bn in tax credits, grants, loans, and subsidies for cleantech, many guaranteed past 2030, designed to spur private-sector investment and accelerate US decarbonization.
  2. Credit Suisse estimates public spending enabled by the Inflation Reduction Act could eventually reach $800bn, and $1.7tn once private spending generated by the loans and grants is included.
  3. The Inflation Reduction Act's credits can be sold, allowing investors with sufficient tax liability to buy them, a mechanism to channel more capital to developers quickly.

AI Summary. Researchers argue that water reacting with iron minerals deep underground continuously generates natural hydrogen, which rises through the crust and can accumulate in underground traps worldwide. A U.S. Geological Survey model estimates there may be enough natural hydrogen to meet growing global demand for thousands of years.

Eric Hand Science
Date Posted:

The US Geological Survey finds evidence of large stores of natural hydrogen, a source of carbon-free energy which might be enough to meet global demand for thousands of years. @erichand @ScienceMagazine

Can naturally generated underground hydrogen supply global demand for thousands of years?

Core argument: A U.S. Geological Survey model presented in October 2022 at a Geological Society of America meeting indicates there may be enough natural hydrogen to meet growing global demand for thousands of years.

Contrary to conventional wisdom, large stores of natural hydrogen may exist all over the world, like oil and gas—but not in the same places. These researchers say water-rock reactions deep within the Earth continuously generate hydrogen, which percolates up through the crust and sometimes accumulates in underground traps. Critically, natural hydrogen may be not only clean, but also renewable. It takes millions of years for buried and compressed organic deposits to turn into oil and gas. By contrast, natural hydrogen is always being made afresh, when underground water reacts with iron minerals at elevated temperatures and pressures. There might be enough natural hydrogen to meet burgeoning global demand for thousands of years, according to a U.S. Geological Survey (USGS) model that was presented in October 2022 at a meeting of the Geological Society of America.

Takeaways by Macro Roundup® AI

  1. A U.S. Geological Survey model presented in October 2022 at a Geological Society of America meeting indicates there may be enough natural hydrogen to meet growing global demand for thousands of years.
  2. Researchers argue that water-rock reactions deep within the Earth continuously generate hydrogen that percolates up through the crust and sometimes accumulates in underground traps, with large stores possible worldwide.
  3. Unlike oil and gas, which take millions of years to form from buried and compressed organic deposits, natural hydrogen is made afresh when underground water reacts with iron minerals at elevated temperatures and pressures.

AI Summary. Market-based measures of 5-year inflation expectations sit in the midrange consistent with the Federal Reserve's target and longer-run expectations remain below target, but the path to disinflation looks longer and bumpier. Seasonal-adjustment revisions made recent inflation data look stronger, nominal income and spending growth remain elevated, and markets have priced out nearly all previously expected rate cuts.

Joseph Politano Apricitas Economics
Date Posted:

.@JosephPolitano notes that short term inflationary expectations are still largely consistent with the Fed’s target despite the Intercontinental Exchange’s inflation expectations index rising to almost 3% relative to 2.5% at the start of the year.

Is the path to disinflation longer and bumpier than expected?

Core argument: Intercontinental Exchange's market-derived inflation expectations index now points to CPI inflation ending the year at nearly 3%, up from the 2.5% it projected in early January.

Market-based measures of 5-year inflation expectations are nearly square in the midrange of what would be consistent with the Fed’s target, and longer-run expectations actually remain below target. But the path to disinflation now looks longer and a bit bumpier than before. Revisions to seasonal adjustments have made recent inflation data look stronger than we thought, nominal income and spending growth remain elevated, and nearly all of the rate cuts previously expected for 2023 have been priced out by financial markets. Intercontinental Exchange’s inflation expectations index, derived from a variety of market data, now expects CPI inflation to end the year at nearly 3% instead of the 2.5% it expected in early January. Inflation may still not look permanent and structural, but it looks a bit more common and persistent.

Takeaways by Macro Roundup® AI

  1. Intercontinental Exchange's market-derived inflation expectations index now points to CPI inflation ending the year at nearly 3%, up from the 2.5% it projected in early January.
  2. Market-based five-year inflation expectations sit nearly square in the midrange consistent with the Fed's target, while longer-run expectations remain below target.
  3. Revisions to seasonal adjustments have made recent inflation data look stronger than previously thought, nominal income and spending growth remain elevated, and financial markets have priced out nearly all rate cuts previously expected for 2023.

AI Summary. The authors estimate that a monetary tightening equivalent to a 1 percentage point rise in the federal funds rate reduces rent inflation by about 3.2 percentage points, with the full effect taking roughly 2½ years. Given housing's share of consumer spending, that implies about a 0.5 percentage point reduction in overall inflation.

Zheng Liu and Mollie Pepper Federal Reserve Bank of San Francisco
Date Posted:
Is Database:
Database

The @sffed estimates that historically a 1pp increase in the federal funds rate reduced rent inflation by 3.2pp over two and a half years suggesting the current tightening will bring rent inflation down.

Does monetary tightening reduce rent inflation, and how long does it take?

Core argument: Estimates for 1988–2019 indicate that a policy tightening equivalent to a 1 percentage point increase in the federal funds rate reduces rent inflation, measured by 12-month changes in the PCE housing price index, by about 3.2 percentage points.

We estimate that, during the period from 1988 to 2019, a policy tightening equivalent to a 1 percentage point increase in the federal funds rate can reduce rent inflation—measured by 12-month percentage changes in the personal consumption expenditures (PCE) housing price index—by about 3.2 percentage points, but the full impact takes about 2½ years to materialize. Based on housing costs’ share in total PCE, this translates to a reduction in headline PCE inflation of about 0.5 percentage point over the same time horizon. Although average rents are slow to respond to policy changes, growth of asking rents on new leases has started to slow following recent monetary policy tightening. Our finding suggests that this tightening will gradually bring rent inflation down over time, thereby helping to reduce overall inflation.

Takeaways by Macro Roundup® AI

  1. Estimates for 1988–2019 indicate that a policy tightening equivalent to a 1 percentage point increase in the federal funds rate reduces rent inflation, measured by 12-month changes in the PCE housing price index, by about 3.2 percentage points.
  2. Based on housing costs' share of total personal consumption expenditures, the same tightening translates into a reduction in headline PCE inflation of about 0.5 percentage point, with the full impact taking about 2½ years to materialize.
  3. Average rents respond slowly to policy changes, but growth of asking rents on new leases has started to slow following recent monetary policy tightening, suggesting rent inflation will decline gradually.